Over-reliance on credit cards and a lack of self-control can be devastating during periods of economic turmoil, personal finance guru Dave Ramsey explained in a Friday interview with Fox Business.
According to the Bureau of Labor Statistics, year-over-year inflation reached 8.5% in July, with the slight moderation from the 9.1% reading in June driven by lower prices at the pump — even as prices for food, new vehicles, medical care, and shelter continued to rise.
Ramsey responded to Americans’ increased usage of credit cards and rewards programs by noting that such strategies will only worsen budgetary problems in the future.
“We’ve seen decades since we’ve been in this bad position. And people are going to fix the inflationary problems, the pressures with the wrong tool,” Ramsey explained to Fox Business host Neil Cavuto. “And the credit card is the wrong tool. It’s going to cause them problems later. It comes home to roost. It’s really sad.”
Indeed, the number of general-purpose credit cards surged past 500 million for the first time ever during the second quarter of 2022, according to a report from Fidelity. TransUnion Vice President of Research and Consulting Michele Raneri noted that “high inflation and rising interest rates” are primary challenges impacting Americans’ personal finances.
Likewise, total household debt rose by $312 billion during the second quarter of 2022 to reach $16.2 trillion, with credit card balances seeing their largest year-over-year percentage increase in more than 20 years, according to the Federal Reserve Bank of New York.
Ramsey suggested increasing financial discipline as a more viable strategy. “Whatever you’re doing, look out there into the future and say, ‘Where’s that going to? Where’s that going to take me?’ Then that kind of critical thinking will lead you back to doing a budget,” he said. “What happens in your house … is way more important than what happens in the White House. So don’t let these outside variables destroy your future by you not controlling you.”
Several financial metrics suggest that consumers’ financial troubles are on the rise following COVID and the lockdown-induced recession. Debt service payments for consumer loans as a percentage of disposable income have risen from 5.1% during the second quarter of 2020 to 5.6% during the first quarter of 2022 after a marked decline, according to the Federal Reserve Board of Governors.
Despite the economic turmoil, President Joe Biden — who began his tenure when inflation was 1.4% — took a victory lap in reaction to the most recent price level announcement. “Today we received news that our economy had 0% inflation in the month of July,” he told members of the press. “Here’s what that means — while the price of some things went up last month, the price of other things went down by the same amount. The result: zero inflation last month. People are still hurting, but zero inflation last month.”
The newest inflation report occurs as the Biden administration endorses the Inflation Reduction Act — a $740 billion package that includes $369 billion in climate provisions. Vice President Kamala Harris cast the tie-breaking ballot in a party-line Senate vote earlier this week.
Source: Dailywire
